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5 Bargain Dividend Stocks to Buy Now

by: Dan Burrows
December 12, 2018
American dollar symbol standing on wood surface in front of a graph. Selective focus. Horizontal composition with copy space.

Getty Images

‘Tis the season to go bargain hunting for stocks.

It might not feel like it, what with the Dow Jones Industrial Average having kicked off December by shedding nearly 1,200 points, but now is the time to do some holiday shopping in the market, especially in dividend stocks.

After all, as Warren Buffett likes to say, “Be greedy when others are fearful.” And the way the market has been behaving lately, it’s pretty clear that fear abounds.

The general retreat in share prices means valuations are down and yields are up. (Dividend yields and stock prices move in opposite directions.) That has made several large-cap, high-quality dividend stocks look mighty tempting.

The Standard & Poor’s 500-stock index currently trades at 15 times expected earnings, according to Yardeni Research. To find bargains, we scoured the broad-market index for large companies that trade for less than 15 times projected earnings. At the same time, we limited our search to dependable dividend payers with yields of at least 3%.

After taking long-term earnings growth forecasts and analysts’ opinions into account, the following five names stood out as bargain dividend stocks to buy now.

  • 19 Best Stocks to Buy for 2019 (And 5 to Sell)
Data is as of Dec. 10, 2018, unless otherwise noted. Companies are listed alphabetically. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Analysts’ ratings provided by Zacks Investment Research.

1 of 5

Chevron

SAN FRANCISCO - APRIL 4:The Chevron logo is seen at a Chevron gas station April 4, 2005 in San Francisco, California. ChevronTexaco Corp., the nation's second biggest oil concern, is buying r

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  • Market value: $219.6 billion
  • Dividend yield: 3.9%
  • Analysts’ opinion: 10 strong buy, 1 buy, 5 hold, 0 sell, 0, strong sell

Weaker oil prices are weighing on stocks in the energy sector, and that has helped make shares in Chevron (CVX, $114.94) look like a bargain. Analysts at Credit Suisse continue to rate the stock at “Outperform” (buy, essentially), in part because of its “compelling relative valuation.”

In other words, CVX looks cheap versus competitors and the broader market.

Chevron, a component of the Dow Jones Industrial Average, was off 9.9% for the year-to-date through Dec. 10. The S&P 500 was down 2.3% over the same time frame. That underperformance has CVX trading at just 12.2 times expected earnings, according to data from Thomson Reuters – that’s less than the 15 forward P/E of the S&P 500.

Analysts expect Chevron’s earnings to grow at an average annual rate of 58% over the next five years, helped by what Jefferies analysts call its industry-leading position in Texas’s Permian Basin. The drop in CVX stock has pushed the yield on its dividend up to nearly 4%.

  • 101 Best Dividend Stocks to Buy for 2019 and Beyond

2 of 5

Kraft Heinz

CHICAGO, IL - MARCH 25: In this photo illustration, Heinz Tomato Ketchup is shown on March 25, 2015 in Chicago, Illinois. Kraft Foods Group Inc. said it will merge with H.J. Heinz Co. to form

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  • Market value: $58.9 billion
  • Dividend yield: 5.1%
  • Analysts’ opinion: 8 strong buy, 0 buy, 2 hold, 0 sell, 3, strong sell

Shares in Kraft Heinz (KHC, $48.27) – down 37% for the year-to-date and 10% in just the last month alone – may finally be too cheap to ignore. Analysts at Stifel sure think so. They rate KHC at “Buy,” citing the packaged food giant’s “robust earnings growth outlook,” valuation and hefty dividend yield.

Kraft Heinz trades at 12.9 times projected earnings. That’s an uninspired number despite the fact that analysts still expect earnings to increase at an average rate of 6.7% a year for the next five years. Add in the dividend yield of more than 5%, and KHC looks pretty tasty.

It also doesn’t hurt that Warren Buffett, CEO and chairman of Berkshire Hathaway (BRK.B), is a big fan of Kraft Heinz. With a 26.7% stake in KHC, Berkshire Hathaway is the food company’s largest shareholder.

  • 10 Stocks Warren Buffett Is Buying (And 6 He's Selling)

3 of 5

Occidental Petroleum

Midland, TX - Sun rise in the Permian Basin as pump jacks pull the oil out of the ground.

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  • Market value: $48.7 billion
  • Dividend yield: 4.6%
  • Analysts’ opinion: 13 strong buy, 0 buy, 5 hold, 0 sell, 0, strong sell
  • Occidental Petroleum (OXY, $64.44) is another beaten-down energy sector name sporting an attractive valuation and hefty dividend yield.

OXY stock was off 13% through Dec. 10, lagging the S&P 500 by more than 10 percentage points. But the downdraft has Occidental Petroleum trading at just 11.5 times expected earnings. And analysts project average annual earnings growth of 74% over the next five years – though much of that is front-loaded in the next couple of years – according to a survey by Thomson Reuters.

The red-hot earnings growth rate, hefty dividend yield and discounted share price make OXY look like one of the best energy stocks to buy for 2019.

  • The 5 Best Investments You Can Make in 2019

4 of 5

Pfizer

NEW YORK, NY - OCTOBER 29: The Pfizer headquarters in New York City stands in the heart of Manhattans business district on October 29, 2015 in New York City. Ireland-based Allergan confirmed

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  • Market value: $256.7 billion
  • Dividend yield: 3.0%
  • Analysts’ opinion: 5 strong buy, 1 buy, 3 hold, 0 sell, 1, strong sell
  • Pfizer’s (PFE, $44.40) stock is having an enviable 2018, but even they haven’t been immune to the market’s December plunge. True, shares in the pharmaceutical giant have gained 22% for the year-to-date through Dec. 10 … but they’ve also dropped 4% from their Nov. 30 peak.

Consider it an opportunity to buy a blue-chip stock on marginal weakness.

Pfizer, a component of the Dow, trades at just 14.3 times expected earnings. That’s cheaper than the S&P 500. Analysts expect PFE to generate average annual earnings growth of 7.4% for the next five years, according to data from Thomson Reuters.

Steady earnings growth and a reliable dividend help make Pfizer stock a darling of institutional investors. Indeed, the drugmaker is a top stock pick for mutual fund managers.

5 of 5

Verizon

Ft. Wayne, US - September 19, 2016: Verizon Wireless Retail Location. Verizon is One of the Largest Technology Companies XI

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  • Market value: $240.8 billion
  • Dividend yield: 4.2%
  • Analysts’ opinion: 9 strong buy, 1 buy, 10 hold, 0 sell, 0, strong sell
  • Verizon (VZ, $58.27) is another defensive Dow stock that has delivered gains in 2018 but also has been nicked by the December selloff. Shares in the telecommunications giant are off more than 5% from a 52-week high hit on Nov. 20.

The retreat has VZ trading at just 12.2 times expected earnings, according to Thomson Reuters. That’s almost 19% cheaper than the S&P 500. Additionally, the drop in VZ stock has pushed the yield on the dividend up past 4%.

Steady earnings growth and a dividend that’s gone up annually since 2007 have helped make Verizon a top stock pick for analysts, hedge funds and mutual fund managers.

  • 10 Small-Cap Stocks to Buy for 2019 and Beyond
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